Companies Turn to New CEOs

In 2012, the world’s largest 2,500 public companies were very active in putting in place the leaders they need: 15.0 percent of CEOs at those companies left office last year, up from 14.2 percent in 2011. This is the second-highest rate of CEO turnovers in the 13-year history of the Booz study conducted by Ken Favaro, Per-Ola Karlson, and Gary L. Nelson. The 2012 study saw the largest share of planned CEO successions in all the years Booz examined the group. Planned successions (as opposed to CEOs who were forced out or who lost their jobs because of an acquisition) accounted for 72 percent of all turnovers in 2012, up from 46 percent in 2006. This suggests that companies are working more thoughtfully than ever to ensure they put in place new leaders who will best serve the company for years to come. Who are those leaders? For the most part, they are familiar faces: Companies promoted insiders (people already at the company) 71 percent of the time—and a quarter of all new leaders had worked at the same company for their whole career; 81 percent of new CEOs were from the same country where the company’s headquarters was located; and 95 percent were men.

The following are excerpts from the report’s main findings:

Companies are actively generating CEO successions and working thoughtfully to ensure they get the leaders they need, after a steep fall in turnovers during the recent recession.
– In 2012, the 2,500 largest public companies in the world generated the second-highest turnover rate since 2000: 15.0 percent.

With this rate following last year’s 14.2 percent rate, CEO turnover is restabilizing around its historical level after a significant dip during the recent recession. The 2012 rate is slightly higher than the eight-year historical average of just over 14 percent.

The highest turnover rate in the history of the study was 15.4 percent in 2005, which followed close on the heels of low rates during the recession of the early2000s.
– Companies are increasingly planning their successions, seeking to build on the leadership stability most have enjoyed as the economy has improved.

From a low of 46 percent in 2006, the share of turnovers that were planned has risen steadily, to 72 percent in 2012. This is the highest share of planned turnovers since Booz & Company began the study in 2000. The share of planned turnovers this year may be so high in part because some companies postponed a transition during the worst of the crisis and are now feeling able to manage a change.

Turnovers related to M&A accounted for only 9 percent of all turnovers in 2012, the lowest share ever. This is simply a result of the overall low rate of major deals in 2012.

Forced turnovers, at 19 percent of all turnovers in 2012, are their second-lowest share ever, and the fourth-lowest rate ever. This is another sign that companies are now able to take a thoughtful approach to transitions: They are stable enough to force someone out if they need to, but in general they have the leaders they want or the time to allow a CEO to improve performance

The report examined the professional backgrounds of the incoming class of CEOs. The data suggests that the “global CEO” is more mythical than real—indeed, companies often seek familiarity in a new CEO.
– With 300 incoming CEOs, this is the largest class since we started our study in 2000.
– Most companies are actively focusing on developing the leaders they need: 71 percent of new CEOs in 2012 are insiders—people who were promoted from within.
– Though the companies we studied are large ones, most of which operate on a global scale, they tend to stick close to home when picking a CEO. In 2012, 81 percent of companies that hired a CEO chose one from the same country where company head-quarters is located, and an additional 9 percent hired a CEO from a different country but the same region as headquarters.
– 55 percent of this year’s new CEOs joined their current company from one in the same industry, whether they did so as CEO or in another position.

Another way in which the new class of CEOs is familiar is gender: Only 5 percent of the incoming CEOs in 2012 are women—a notable rise from the 3 percent average over the prior three years, but still a tiny share.

In terms of educational background, 29 percent of new CEOs in 2012 have an MBA. The median age of those with an MBA was 52, two years lower than for those without, suggesting that taking time out to earn an MBA may speed up a career in the long run.

In 2012, the hiring done by the 250 largest companies was a little different from that of smaller ones (the bottom 2,250): The larger companies’ incoming CEOs were more often insiders (83 percent vs. 69 percent), more often had experience in different regions than company headquarters (52 percent vs. 44 percent), and more often had MBAs (41 percent vs. 28 percent).

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